Construction Industry to Grow by 8–10% in FY2026: ICRA
ICRA projects the construction industry to report a year-on-year (YoY) growth of 8–10% in operating income (OI) for FY2026, supported by an adequate order book position and a low base in FY2025. However, this marks a moderation from the long-term compound annual growth rate (CAGR) of ~15% recorded during the FY2018–FY2024 period. ICRA estimates the aggregate order book/OI for its sample set of entities¹ at ~3.5 times as of March 31, 2025, reflecting healthy growth prospects and revenue visibility. ICRA forecasts the operating margin of the players to remain steady at 10.5–11.0% for both FY2025 and FY2026.
The Model Code of Conduct (MCC) in Q1 FY2025, along with an elongated monsoon period and a shift to milestone-based billing in Q2 FY2025, significantly impacted construction activities—particularly for road projects. After witnessing a muted 1.5% YoY growth during H1 FY2025, the execution pace picked up in Q3 FY2025 and sustained into Q4 FY2025. Nonetheless, due to the subdued first half, the overall OI growth for ICRA’s sample set in FY2025 is estimated to remain low, at 1–3%. Fresh order inflows remained modest in the first nine months of FY2025, primarily due to the impact of the General Elections.
Suprio Banerjee, Vice President and Co-Group Head, Corporate Ratings, ICRA, said, “The aggregate order book/OI for ICRA’s sample set of entities is estimated at ~3.5 times as on March 31, 2025, reflecting healthy growth prospects and revenue visibility. Although the order inflows in FY2025 are likely to trail those seen in FY2024, the pick-up in order-awarding activity from Q3 FY2025 onwards is expected to result in a satisfactory order book position. Contractors focused largely on the road segment are likely to underperform compared to broader trends, owing to the slowdown in order-awarding activity from the MoRTH/NHAI. Several mid-sized road construction entities have an order book/revenue ratio of less than 2.0 times, indicating potential stress on their revenue prospects in FY2026. Diversified players, especially those focusing on urban infrastructure, renewable energy, and water-related projects, are anticipated to perform relatively better in the current fiscal.”
Sub-segments like railways, roads, and urban infrastructure have experienced stiff competition in recent years. A majority of the road projects under the MoRTH/NHAI were awarded at significant discounts compared to the authority’s base prices. Competition in other sectors (metro, railways, water supply, and sanitation) has also intensified, with new entrants seeking to diversify their order books. ICRA expects the operating margins of players to remain range-bound at 10.5–11.0% in FY2025 and FY2026, supported by relatively stable input prices and operating leverage benefits. However, operating profit margins (OPM) have gradually moderated from the 13–14% levels seen in FY2021 due to increased competition.
“The cash conversion cycle is expected to remain at current levels, given that the expiry of the Atmanirbhar Bharat relief measures has already elongated the working capital cycle for players in FY2025. While debt levels are likely to increase to support higher working capital requirements, the corresponding operating leverage benefits are projected to keep the interest coverage ratio adequate at 3.6–3.9 times in FY2026e. Given the moderate leverage and satisfactory debt coverage metrics, ICRA maintains a Stable outlook on the construction sector,” Banerjee reiterated.
